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Auditing Final

jennikki

Front Back

The study of auditing is based

move conceptual framework
useing analytical & logical skills
1-1
to evaluate the relevance &
What is studying auditing
reliability of the systems &
different from studying other
processes responsible for financial
accounting topics? How might
information. Understanding
understanding concepts prove
auditing can improve the decision
useful for consultants, business
making ability of consultants,
managers, and other business
business mangers, and accounts
decision makers?
by providing a frame work for
evaluating the usefulness &
realability of information.

The agency relationship between

an absentee owner and manger
produces a natual conflict of
1-2
interest do to the information
Discuss why there is a demand for
asymentry that exist between the
auditing services in a free-market
owner & manager. empirical
economy. What evidence suggest
evidence suggest s auditiing was
that auding would be demanded
demanded prior to governmental
even if it were not required by
regulations. Additional, many
government regulation?
private companies and otehr
entities not subject regulations
also demand auditing

Because of difference in the 2

1-3 parties goals & because of
What is meant by the statement, information asymmetry that exists
"The agency relationship between between them manager generally
absentee owners and managers has more information about "true"
produces a natural conflict of financial position & results of
interest"? operations of the entity than the
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absentee owner.

If an auditor is not independent of

the client, users may lose
confidence in the auditors ability
1-4
to report truthfully on the
Why is independence such an
financial statemetns, and the
important requirement for
auditor's work loses its value.
auditor? How does independence
From and agency perspective, if
relate to the agency relationship
the principal (owner) knows that
between owenres and managers?
the auditor is not independent, the
owner will not trust the auditor's
work

Auditing - A systematic process

of objectively obtaining &
evalating evidence regarding
assertions about economic actions
and events to ascertain the degree
of correspondence between those
assertions & establihed criteria &
communating the result to
1-5
interested users
Define Auditing, Attest, and
Attest - to affirm to be
Assurance Services.
true/genuine or officially
authorize
Assurance - Engagemetn where a
practitioner expresses a
conclusion designed to enhance
the degree of confidence of the
intended useres other than the
responsible party

1-6 the phrase "systematic process"

the committe on Basic Auditing implys that there shoul dbe a
Concepts has provided a widely well-planned, logical approach for
cited definition of auditing. What conducting an audit that involves
does the phrase "systematic objectively obtaining &
process" mean in the difinition? evaluating evidence

Audit Risk - the risk the auditor

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expresses an in appropriate audit

opinion when the financial
statements are materially
1-7 misstated
Define audit risk and materiality. Materiality - Omissions or
How are these concepts reflected misstatements of items are
in the auditor's report? material if they could
individually/collectively influence
the economic decisions of users
taken on the basis of the financial
statements

1-8
Briefly describe why on most
It is not feasible or cost-effective
audit engagements an auditor test
to audit all transactions
only a sample of thransactions
that occurred.

- Client Acceptance/Continuance
& establishing engagement terms
- Preplanning
-Assess risks & establishing
materiality
1-9
- Plan the audit
What are the major phases of an
- Consider internal control
audit?
- Audit business processes &
related accounts
- Complete the audit
- Evaluate results & issue audit
report

1-the nature of the entity

2-its objectives & strategies
1-10 3-its industry, regulatory & other
The auditor's understanding of the external factors
entity and its environment should 4-its management
include knowledge of which 5-its governance
categories of information? 6-its measurement & performance
process
7-its business processes

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1-11 Introductory
Identify the four paragraphs of the Scope
auditor's standard unqualified Opinion
report for a public company Explanatory
client.

Sometimes auditors will face

situations where no standard audit
1-12
procedure exists, such as the
Briefly discuss why auditors must
example from the text of verifying
often exercise creativity and
the inventory of reindeer.
innovation in auditing financial
Every client is different &
statements. Give an example
applying auditing concepts in
different from the one offered in
different situations require logic
the text.
and common sense & frequently
creativety & innovation

1-13
An independent audit aids in the Lends credibility to the financial
communication of economic data statements
becuase the audit

1-14 Different interests may exist

Which of the following best between the entity preparing the
describes the reason why an statements and the persons using
independent auditor is often the statemetns, and thus outside
retained to report on financial assurance is needed to enhance
statements? the credibility of the statements.

1-15
Which of the following best
Auditing is a type of assurance
describes realtionships among
service
auditing, attest, and assurance
services?

1-16
Financial statements auditing is a
Which of the following
form of attest service but it is not
statements relating to attest and
an assurance service
assurance services is not correct?

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1-17
For what primary purpose does To plan the audit and determine
the auditor obtain an the scope of the audit procedures
understanding of the entity and its to be performed
environment?

1-18
The lower the level at which the
Whcih of the following
auditor assesses materiality the
statements best describes the role
greater the amount of evidence
of materiality in a financial
the auditor must gather
statement audit?

1-19
Which of the following is the Understanding a clients system of
most important reason for an internal control can help the
auditor to gain an understanding auditor assess risk and identify
of an audit client's system of areas where financial statements
internal control over financial might be more likely
reporting?

-Understanding the client and the

client's industry
1-20
-Determining audit engagement
Preliminary engagement activities
team requirements
include
-Ensuring the independence of the
audit team and audit firm

Issuance of a standard unqualified

auditor's report indicates that in
1-21 the auditor's opinion the clients
Which of the following statmetns financial statements are fairly
best describes what is meant by presented in accordance with
an unqualified audit opinion? agreed upon criteria, with no need
for the inclusion of qualifying
phrases

1-22 Explicitly referred to in the scope

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The auditing standards used to paragraph of the auditors standard

guide the conduct of the audit are report

1-23
A client has used an inappropriate
method of accounting for its
pension liability on the balance
sheet. The resulting misstatement
is modrately material, but the
auditor does not consider it to be
Qualified Opinion due to
pervasive. The auditor is unable
departure from GAAP
to convince the client to alter its
accounting treatment. The rest of
the financial statements are fairly
stated in the auditor's opinion.
Which kind of audit report would
an audit most likely issue in these
circumstances?

1 - External
2-1 2 - Internal
List the various types of auditors 3 - Government
4 - Forensic

Compliance - Internal Auditors

w/Corporate rules

2-2 Operational - Food & Drug

Give one example each of Admin to determine efficiency &
Compliance, Operational, and effiveness of procedures for
Forensic Audits introducing new drugs

Forensic - Cash disbursements for

payments to unauthorized venders

Late 90's early 2000's accounting

firms wanted to expand their
2-3 business in to consulting led to
Briefly discuss the key events that conflect of interest - Enron,
led to the Sarbanes-Oxley Act of WorldCom & Tyco - Caused
2002 & the creation of the doubt w/fundemental integrity of

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PCAOB. the financial reporting system. To

restore congress passed Act and
created PCAOB in 2002.

The "back to basics" emphasis,

2-4
along with auditing firms renewed
Discuss how the events that have
focus on thorough & effective
so dramatically affected auditors
financial statements audits. The
& the public accounting
SOX-mandated audit of internal
profession since the Enron
control over financial reporting
scandal may in some sense be
has brought significant new
"healthy" for the profession.
revenues to accounting firms.

Management - prepairs financial

statemetns that fairly presents the
company'sfinancial condition and
operations
2-5
Compare & contrast
Auditor - issues an opinion in
managements responsibility for
regards to the financial statemetns
the entity's financial statements
prepared by management
with the auditor's responsibilities
for dectecting errors & fraud in
**The auditors unqualified
the financial statements.
ipinion does not mean that
errors/fraud do not exist - only
reasonable assurance they do not
exist in material amounts.

Corporate goveranance - carried

out by management and the board
2-6 of directors; business objectives
Briefly discuss each of the achieved and assets safeguarded.
components of the high-level
model of business offered in the Objectives - management forms
cahpter (i.e. objectivities, Strategies and implements various
strategies, processes, etc.). Why processes which are carried out
might understanding the thru transactions
characteristics of a clients
business in each of these areas be Internal Control - designed to
important for a financial statemetn ensure that transactions properly
auditor? executed, captured & processed to
produce accurate financial

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statements

The IT System should be capable

of producing accurate financial
2-7 reprots to summarize the effects
What roles do information of the entity's transactions.
systems & systems of internal Effective internal control provides
control play in the high-level safeguards to ensure the
model of business discussed in the (1)reliability of financial reporting
chapter, and why might it be (2) compliance with laws and
important for an auditor to regualtions and (3) the
understand these roles? effectivenness and efficiency of
operations. In planning th enature,
timing and extent of testing.

Statements on: Auditing

Standards, Standards for
2-8
Attestation Engagements,
The AICPA performs a number of
Standards for Accounting &
functions that directly bear on
Review Services, Quality Control
independent auditors of non
Standards, Standards for
public entities, including
Consulting Services, and
promulgation of rules and
Standards for Tax Services
standards. List four types of
standards issued by the AICPA.
Standards for Performing &
Reporting on Peer Reviews

PCAOB is a quasi-governmental
organization (government owned
corporation) over seen by the
2-9
SEC. Formed to provide
What kind of organization is the
governmental regulations of the
PCAOB, why was it formed and
standards used in conducting
what does it do?
public company audits b/c of a
perceived failure of hte profession
to adequately regualte it self.

The SEC has congressional

authority form the original
security's act of 1933 & 1934 to
establish accounting and auditing

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2-10 standards for publicly traded

What role does the SEC play in
the establishment of accounting
and auditing standards for public
companies?
companies. SOX of 2002 gave the
SEC the mandate to actively
regulate the public accounting
profession by establishing and
overseeing the PCAOB and its
standard-setting process relating
to the audits of public companies.

10-K & 10-Q: Annual &

2-11
Quarterly reports including
What are some of hte common
audited financial statements
documents encounted by auditors
that are required by the SEC act
8-K: Filed whenever a significant
of 1934? What is the purpose of
event occures which may be of
each of these documents?
interest to investors

1-Purpose & premis of an audit

2-Personal responsibilities of the
auditor
2-12 3-Auditor actions in performing
List the four categories of the audit
Priniples Underlying and Audit 4-Reporting
Conducted in Accordance with
GAAP. How do the Principles Includes all the key concepts of
relate to the 10 GAAS, and how GAAS in a more organized
are they different? manner, also includes other
concept not in GAAS like
identifying the purpose of an audit
and management responsibilities

1-General Standards
2-Standards of Fieldwork
3-Standards of reporting
2-13
List the 3 categories of GAAS, Individual engagements may
Discuss why the GAAS and the require the auditor to perform
SAS are considered minimum audit work beyond the specified in
standards of performance for GAAS & SAS
auditors.
Professional Judgement must
follow all standards

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2-14 If an auditor isn't independent of

Why is independence such an the client financial statement users
important standard for auditors? may lose confidence in the
How does auditor independence auditor's ability to report
relate to the agancey relationships objectively and truthfully; Also
between owners and managers management may not trust the
discussed in Chapter 1? auditor's work.

2-15
Providing reports on the
Which of the following is not a
reliability of financial statements
part of the role of internal
to investors and creditors
auditors?

2-16 Future umprovements to

Operational auditing is oriented accomplish the goals of
primarily toward management

2-17
Expressing and opinion about the
Which of the following would be
reliability of a client's financial
considered an assurance
statement
service engagement?

Increased consulting services to

2-18
audit clients, Enron and other
Which of the following best
scandals, SOX prohibition of
places the events of the last
most consulting work for audit
decade in proper sequence?
clients, establishment of PCAOB

2-19 Management has the primary

Which of the following responsibility to ensure that the
statements best describes company's financial statemetns
managemetns and the external are prepared in accordance with
auditor's respective levels of GAAP, an auditor provides
responsibility for a public reasonable assurance that the
company's financial statements? statements are free of material
misstatement

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To achieve its objectives, a

business formulates stratiegies
2-20 and implements processes which
Which of the following best are carried out thru business
describes the relationship between transactions. The entity's
business objectivies, strategies, information and internal control
processes, controls and systems must be designed to
transactions? ensure that the transactions are
properly executed, captured, and
processed

Is a quasi-governmental
2-21
organization that has legal
The Public Company Accounting
authority to set auditing standards
Oversight Board (PCAOB)
for audits of public companies

Accounting Standard Board

2-22
(ASB) - Non public Company
Which of the following is correct
Audits
regarding the types of audits over
which the ASB and the PCAOB
Public Company Accounting
respectively have standard setting
Oversight Board (PCAOB) -
authority in the US?
Public Company Audits

2-23
Which of the following best
Criteria for audit planning &
describes the general character of
evidence gathering
the 3 GAAS Classified as
standards of field work?

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